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Valeant Sinks Deep on Forecast, Debt Warning

Valeant Pharmaceuticals International Inc. shares plunged Tuesday in their worst day ever, falling as much as 49% after the company cut its 2016 forecast, reported a weak fourth quarter and said it risked breaching some of its debt agreements if it can’t file its annual report in time.

During a two-hour call with analysts, Chief Executive Officer Mike Pearson was questioned about why he was the right man to lead the drugmaker. Adding to the company’s problems, during the call it corrected its press release issued hours before, saying that one measure of earnings would actually be lower than it had stated.

“How can we be confident in what you’re saying about the business, given you were positive in December, and January?” said Shibani Malhotra, an analyst with Nomura Securities who has been bullish on the stock, with a buy rating and a $175 price target. “How do we get comfortable that Valeant is able to execute and deliver for shareholders?”

The shares were down 47% to $36.58 at 12:17 p.m. in New York, after earlier dropping as much as 49% to the lowest intraday price since October 2011 and the biggest intraday drop in the company’s history. The shares have now lost more than 85% of their value since their August 2015 peak.

Billionaire investor Bill Ackman, one of Valeant’s top holders, lost about $735 million on the day, based on Tuesday’s low of $35. His Pershing Square Capital Management LP owns 6.3% of the stock, according to data compiled by Bloomberg. Ackman’s calculated losses assume the investors still own the number of shares listed in their most recent regulatory filings, and don’t include declines it may have had on Valeant options that it also owns.

The forecast and uncertainty about the potential for a default have caused investors to lose “total confidence” in the company, Pershing said Tuesday in a letter to shareholders. “We are going to take a much more proactive role at the company to protect and maximize the value of our investment,” said Pershing, which gained a seat board last week with the nomination of Vice Chairman Steve Fraidin.

Credibility

“We have to earn back the credibility,” Pearson said in his first public remarks since returning from a medical leave two weeks ago. “We have to deliver on results. We have to meet or exceed this guidance,” Pearson said during the call. “It’s a bit of a starting over point for me and this company.”

Laval, Quebec, based Valeant is at risk of violating its debt agreements, putting it at the mercy of its creditors, since it will be late filing its annual report. Valeant said it must file its 10-K by March 30 to avoid triggering cross-defaults that would restrict it from being able to further tap its credit line. It won’t be able to meet that deadline and will begin asking lenders next week to amend the credit agreement so that a default is waived.

Earlier Tuesday, Valeant gave new sales and earnings forecasts for 2016 that were lower than projections the company provided in December and then pulled last month. Dermatology and gastrointestinal drugs, which until recently were key growth drivers, are falling short. Pearson said he’s not planning any major asset sales but may divest smaller businesses this year to help pay down debt, which has ballooned to more than $30 billion.

On the call, the company also corrected a statement from its release: Adjusted Ebitda for the next four quarters will be about $6 billion, Valeant said, not the $6.2 billion to $6.6 billion the company said in the release.

Valeant’s bonds were among the biggest losers on Tuesday. Its 6.125% bonds maturing in 2025 traded at their lowest levels before recovering slightly. They were 5 cents lower at 82 cents on the dollar at 11:08 a.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Valeant has promised to pay down debt as fast as it can, and Pearson reiterated that goal on the call. At the same time, the company said that it would pay down at least $1.7 billion in 2016, less than the at least $2.25 billion goal it gave in December.